Archive for ‘income-wealth gap’

A new study by Peking University’s Social Science Research Center pulls back the curtain a bit on China’s überwealthy. The richest 1 percent of Chinese households control more than a third of the country’s wealth, according to the July 26 study.

Most of that is tied up in real estate. In 2012, the study says, real estate accounted for 70 percent of all household wealth in China. (The bottom quarter of households, tellingly, control just 1 percent of China’s wealth.) The outsize reliance on real estate as an investment vehicle for both individuals and enterprises is troubling, given widespread concerns about a property bubble. In June, apartment prices fell in 55 of China’s 70 largest cities, according to China’s National Bureau of Statistics. In the southeastern city of Hangzhou, property prices dipped 1.7 percent that month.

But how do China’s rich stack up against America’s? The U.S. Internal Revenue Service analyzes income, not household net wealth, and in 2012, America’s richest 1 percent took home 19.3 percent of household income. But incomes rose almost 20 percent for the top 1 percent, whereas they inched up just 1 percent for the bottom 99 percent.

The gap between China’s rich and poor is now one of the world’s highest, surpassing even that in the U.S., according to a report being released this week by researchers at the University of Michigan.

The metric used in these studies, the Gini coefficient, would be zero in a society in which all income is equally distributed, while a score of one would reflect a society in which all income is concentrated in the hands of a single individual. Over a three-decade period starting in 1980—shortly after China’s economic reform and opening commenced—the Gini coefficient has grown from 0.3 to 0.55 in 2010.

In the U.S., by contrast, the index reads 0.45. Anything over 0.50 is considered “severe disparity,” says the report in the Proceedings of the National Academy of Sciences. The authors used data from seven separate surveys conducted by a number of Chinese university-affiliated organizations, including Peking University’s Institute of Social Sciences.

In the same week that international educators are debating the comparative merits of global school systems—and whether China’s PISA scores are overhyped—a new report from China Economic Quarterly sheds light on an unintended consequence of China’s recent push to expand higher education.

The annual supply of fresh college graduates far exceeds the number of white-collar positions available in China. Meanwhile a dwindling pool of young people willing to work in Chinese factories has driven up assembly-line wages. The result, conclude GK Dragonomics analysts Andrew Batson and Thomas Gatley, is an unexpected narrowing of China’s worryingly high level of income inequality.

Over the past decade, China has rapidly expanded access to higher education. University enrollment tripled from 2000 to 2010, from 2.2 million to 6.6 million students. Unfortunately, job creation didn’t keep pace. According to survey results from China’s labor ministry obtained by China Economic Quarterly, there were 100 job applicants in mid-2013 for every 80 white-collar jobs in China. For blue-collar positions, however, the scenario was reversed: There were 100 applicants for every 125 slots in China.

If the analysis in this report is correct, then it is good news for China and Xinjiang. Alleviating poverty is difficult, but far easier than eliminating religious extremism.

“In the dirty backstreets of the Uighur old quarter of Xinjiang\’s capital Urumqi in China\’s far west, Abuduwahapu frowns when asked what he thinks is the root cause of the region\’s festering problem with violence and unrest.

\”The Han Chinese don\’t have faith, and the Uighurs do. So they don\’t really understand each other,\” he said, referring to the Muslim religion the Turkic-speaking Uighur people follow, in contrast to the official atheism of the ruling Communist Party.

But for the teenage bread delivery boy, it\’s not Islam that\’s driving people to commit acts of violence, such as last week\’s deadly car crash in Beijing\’s Tiananmen Square – blamed by the government on Uighur Islamist extremists who want independence.

\”Some people there support independence and some do not. Mostly, those who support it are unsatisfied because they are poor,\” said Abuduwahapu, who came to Urumqi two years ago from the heavily Uighur old Silk Road city of Kashgar in Xinjiang\’s southwest, near the Pakistani and Afghan border.

\”The Han are afraid of Uighers. They are afraid if we had guns, we would kill them,\” he said, standing next to piles of smoldering garbage on plots of land where buildings have been demolished.

China\’s claims that it is fighting an Islamist insurgency in energy-rich Xinjiang – a vast area of deserts, mountains and forests geographically located in central Asia – are not new.”

This post and another on China‘s labour force posted today illustrate how fast China is catching up with developed nations, not always for the better.

China Daily: “For 71-year-old Li Yuzhen, a life taking care of a sick husband and a mentally-disabled son in their two-bedroom apartment in the East China city of Hefei has not been easy.

The family of three nets a monthly income of 3,000 yuan ($487), but spends one third of it on medicine. They barely make ends meet with the rest of the money.

Li said they could not afford a nursing home, and she has to stay at home to look after her son, a man in his 40s but still unmarried due to his condition.

In an effort to explore elder care solutions for China’s rapidly aging society, the State Council, China’s Cabinet, vowed last week to complete a social care network for people over age 60 by 2020, when the age group is expected to reach 243 million. This group’s population had already reached 194 million by the end of 2012, giving China the largest senior population on earth.

One solution proposed is the house-for-pension program.

“The plan allows you to deed your house to an insurance company or bank, which will determine the value of your house and your life expectancy, and then grant you a certain amount every month,” said Meng Xiaosu, former CEO of Happy Life Insurance Co, Ltd.

“You can still live in your house, but the company or the bank has ownership,” Meng said.

The program, while only a suggestion, has drawn widespread concern and met with mixed views.

Zhan Chengfu, director of the division on social welfare and charity of the Ministry of Civil Affairs, said the program benefits both the elderly and insurance companies and banks as it can ease elderly care fund shortages, revitalize housing resources and expand the insurance business.

According to a joint study by the Bank of China (BOC) and Deutsche Bank last year, the aging population will leave China with a shortfall of 18.3 trillion yuan in pension funds by 2013 and create a heavy fiscal burden for the country.

Zheng Bingwen, a social security researcher at the Chinese Academy of Social Sciences, likened China’s pension system to a pyramid with the ground level being the basic pension pool, the middle level being companies’ supplementary pensions, and the top level being individuals’ commercial insurance. But the proportion of the total pension funds to gross domestic output is small compared to other BRICS nations.

“We need different channels to supplement funds shortage, and house-for-pension is likely to be a plausible way for elder care,” Zhang said.

However, the proposal stirred a heated public debate, especially among people whose parents have property and fear losing the inheritance.

This post about the workforce and another posted today about houses-for-pensions show how fast China is catching up with the developed nations; not always for the good of its citizens.

BusinessWeek: “John Liu is the 31-year-old founder and owner of Harderson International, a small factory in southern China that applies paint and decals to ceramics and glass. His showroom includes samples of tinted perfume bottles made for Ralph Lauren and Kate Spade.

A 2006 graduate of Wuhan University in central China, Liu is not much older than the 20-somethings and late teenagers who come to work on the assembly line. But generational cohorts in China are extremely compressed, and Liu sees a vast gap in expectations between himself and those a decade younger. “When I finished school, I felt I needed to find a good stable job quickly and earn money,” he says. “But living conditions in China have improved quickly. Young people now don’t have to work so hard to earn a living, and many have parents who will support them. … A lot of those born in the 1990s can’t stand this kind of repetitive work, so they choose to stay home or do very simple cashier work, even though it pays less.” The upshot is that, for a small factory, it’s “getting harder to find workers.”

Last year the total size of China’s working-age population began to decline, according to figures from China’s National Bureau of Statistics. As the Economist ominously noted, China’s moment of “peak toil” has passed. Yet it’s not only demographics that are changing. Today’s Internet-savvy young workers have different ideas and higher expectations than their predecessors, and not only regarding pay. In response to an evolving workforce, factory managers at a handful of small and midsize plants in China’s Pearl River Delta say they must now offer better conditions to attract and retain workers—or else look for opportunities to automate.”

Viewers can watch the pandas at the base in southwestern Sichuan province, part of their native domicile, via 28 cameras planted in five areas that will feed six channels: “garden for adult pandas,” “kindergarten,” “nursery for twins,” “mother-and-child playground,” “No.1 Villa” and “featured.”

In keeping with the bears’ famously laid-back characteristics, the broadcasts have an addictively soporific feel to them, based on China Real Time Report’s viewing of several clips the base posted as sneak peeks.

In one clip, two giant pandas sprawled motionless amid quivering leaves and small skittish birds on an elevated loft. About two minutes later, the angle shifted to a second camera, with the two pandas now seeking refuge from what appeared to be fairly tepid sunlight. In short order, another giant panda lay prone by a burbling stream, in the thrall of what appeared to be another pleasant nap.

The Chengdu base is home to more than 80 freely roaming giant pandas, so it’s unclear whether the subjects are different bears or the same few viewed from various angles.

A few minutes later, the panda by the stream changed his snoozing posture slightly. It’s a small maneuver, but rendered suddenly dramatic by the enervating lull of the video feed and the sheer celebrity of the monochromatic bear. So it comes as no surprise that the clips have already attracted nearly 15,000 viewers since their launch on June 24, Xinhua said.

“I’ve watched an entire morning of pandas eating bamboo, my appetite has improved!” a blogger called Janice Yi wrote on China’s Twitter-like microblogging service Sina Weibo. “They eat, then they fight, and when they’re tired of fighting, they eat again, then they sleep, and a whole day passes.””

BusinessWeek: “Is China finally ready to make some serious progress on reforming its restrictive household registration or hukou policy? That’s the decades-old residency system that gives all Chinese an official status as either urban or rural (as indicated in a small red passbook). On June 26, China’s powerful National Development and Reform Commission announced in a report on urbanization that “the government should gradually tear down household registration obstacles to facilitate the orderly migration of people from rural to urban areas,” according to the official Xinhua News Agency.

To date, the hukou system has not only discriminated against hundreds of millions of Chinese, making it difficult for them to live comfortable lives in cities, it has also been an obstacle to Beijing’s desire to reorient towards a more domestic consumption-driven economy. Even though China became a country with an urban majority in 2011, some 230 million of those now living in the cities still have a rural hukou. That means they do not have access to the same healthcare and education benefits as other urbanites, and often can’t purchase apartments or even get a driver’s license. As a result, most end up being big savers, in preparation for an eventual move back to the countryside—not the free-spending Chinese necessary for Beijing’s rebalancing policy to succeed.

The latest proposal by the NDRC is part of a larger package of policies now being drafted, aimed at pushing faster urbanization in China. The commission’s recommendation for hukou reform however appears fairly modest. Rather than allowing the free flow of people to all of China’s urban areas, it instead allows rural residents the right to first get residency in smaller cities. That is a good first step.”

Reuters: “For Chen Qiuyang, the new Chinese leadership that formally takes over this month can radically improve her life by doing just one thing: providing running water in her village in a remote corner of the northwestern province of Gansu.

“We have to carry water from the well on our shoulders several times day. It’s exhausting,” Chen, who looked older than her 28 years, said in Yuangudui village, resting on a stool outside her home after completing another trip to the well.

Communist Party chief Xi Jinping takes over as China’s new president during the annual meeting of parliament beginning on Tuesday and bridging the widening income gap in the vast nation is one of his foremost challenges.

Xi has effectively been running China since assuming leadership of the party and military – where real power lies – in November, and has already projected a more relaxed, softer image than his stern predecessor Hu Jintao.

But there will be pressure on him to tackle problems accumulated during Hu’s era like inequality and pervasive corruption, which have given rise to often violent outbursts in the world’s second-biggest economy, sending shivers through the party.

Outgoing Premier Wen Jiabao will likely address these issues in his last “state of the nation” report at the National People’s Congress to nearly 3,000 delegates, whose ranks include CEOs, generals, political leaders and Tibetan monks – as well as some of China’s richest businessmen.

China now has 317 billionaires, a fifth of the total number in the world, and is on track to overtake the United States as the largest luxury car market by 2016.

Yet the United Nations says 13 percent of China’s 1.3 billion population, or about 170 million people, still live on less than $1.25 a day.

While parliament is a regimented show of unity that affirms rather than criticizes policies, income redistribution is likely to be a hot topic, along with other issues like ministry restructuring, corruption and the environment.

In January, the State Council, or cabinet, issued a new fiscal framework designed to make rich individuals and state corporations contribute more to government coffers and strengthen a social security net for those at the bottom.

But tackling China’s wealth gap will need more than just taxes. Analysts say state-owned enterprises will have to be privatized and the household registration, or hukou, system that prevents migrants from enjoying the benefits of urban citizens, will have to be dismantled.

“Fiscal reforms and changes to let private firms advance and the state retreat will decide whether this round of reforms can succeed,” said Xia Bin, an economist at the cabinet think-tank Development Research Centre and a former central bank adviser.

“There is definitely no way out,” he wrote in the latest edition of China Finance, a magazine published by the central bank.

Reuters: “China unveiled sweeping tax reforms on Tuesday to make wealthy state-owned firms, property speculators and the rich pay more to narrow a yawning gap between an urban elite and hundreds of millions of rural poor.

The plans approved by the State Council – China’s cabinet – also included commitments to push forward market-oriented interest rate reforms to give savers a better return and more security.

Chief among the reforms is a requirement to raise the percentage of profits contributed by state-owned firms to the government by about 5 percentage points by 2015.

Together with measures to raise wages and improve households’ return on assets, the reforms signal an attempt to shift economic growth towards increased consumption and away from the current reliance on investment spending.

“The State Council is not just talking about the gap between rich and poor, they’re talking about the whole economy and how income is distributed among various actors – the households, the corporations and the government,” said Andrew Batson, research director of GK Dragonomics, an economic consultancy in Beijing.